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Surplusses and taxation

by das monde Sat Jan 21st, 2012 at 05:43:52 AM EST

I was going to respond to a discussion on taxation in the Inequality diary - but my piece got long enough for this diary.

Rather than talk about earned versus unearned income, I suggest to think about taxation of surplus capture (or appropriation). Bear with me.

The basic story in the economy theory is how labour and capital (material and financial) and real estate (land and accommodation) cooperate nicely to produce more wealth. The big problem which is sometimes abused but more often vulgarly ignored is distribution of the newly produced wealth.

Classical economists broadly agreed that generally labor is at the most disadvantageous position, as its wages depend on labor market competition and bargaining power, not ion the surplus produced. We are returning to the times when labor rewards are disgustingly skimpy indeed.

Sure, some highly skilled labor is still richly rewarded, sometimes out of proportion to produced value - think of football (and other sports) star contracts that did turned out delusional. But generally, the impact of globalization was harsh on labor wages.


Capital earns interest, and Henry George argued that received interest reflects capital competition as well. However, financial capital is literally dictating economic policies today. The contracts they set in recent boom times are out of proportion with respect to the production of real wealth in these crisis times. The crisis even gives them reasons to raise the interest rates. There were collecting most of produced surplus in good times, and now they are ripping societies bare to work harder to compensate their investments fully and beyond.

Real estate is earning rent - the old historical privilege. Henry George argues that land rent takes basically all the surplus of economic production, as the rents are set to leave only marginal utility choices to the labour and capital. It is normal again that rent takes 30-50% of income from the masses.

Payments for energy supply, even telecommunication services and transportation can be considered as rent as well - because of limited competition outright natural monopolies, universally privatized only recently. Copyright is a form of rent (as exclusive compensation) as well.

What is taxation? I would say, historically taxation is quite synonymous to rent. Particularly in feudal societies, the government is nothing but supreme rentiers. In the democratic societies of the 20th century, the public government was agreeably an exclusive rentier as well - but the forgotten argument is that this exclusive rentier had quite other interests than pure profit, and arguably, it represented those interests rather competently. At least until certain government "skeptics" took over it.

Following this overall logic, the public governments today is just a facade of actual governors - still large-scale rentiers, if we only include financial capital services as "rent". To most of the people, the overwhelming payments are the various rents above rather than nominal taxation.

But I have to return to the main point: What would be the right distribution of the produced welfare surpluses (if any)? The way the surpluses are distributed now is the following:

The labor gets nothing whatsoever, except some high skill individuals winning inordinate contracts. Ever more predominantly, laborer wages barely cover their own subsistence. The produced material value is not directly or proportionally reflected in wages.

Most directly, the surpluses become the property of corporations and shareholders (and the shareholder "union representatives" - management boards). That is the institutionalized and legally enforced setting throughout the world.

As usual, the real estate gets its rewards indirectly, through rent and pricing of accommodations of various affluence levels. The golden age here was surely just 5-6 years ago, where you could sell your property for unseen premiums.

But the big winners of the boom-and-bust cycle are definitely some (not all) big financial institutions. Unlike spectators of K1 fights, they got actually paid to indulge in supporting bubble bid clashes. Even if they suffer losses of not realizing their multi-digit derivative scores, they are basically taking over the world: dictating policies and payments, keeping up obligation scores, claiming foreclosed securities. No matter if new surpluses are going to be produced.

So what can I say about justification of the whole system and current developments in particular? At the very least, taxation burden should fall on those who actually get the surplus, not on those who only produce with just a competitive compensation. Adam Smith had strong arguments against taxing labor. Also, labor itself is not any surplus individually; someone needs to work for a surplus, right? But capital is a surplus almost by definition - so here I would disagree with the classical economists, especially given modern practices of capital compensation.

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Well, I posted quite a long piece on ET including an Asia Times article  - Back to the Land - on the subject of land rentals, land taxation and land basis for currency. This was in the context of Hong Kong, which has always captured land value through crown rentals on long leases.

But I think in the post-Industrial era we are seeing George's analysis becoming superseded through the exponential growth in intellectual property and 'knowledge work'.

Three points come to mind.

Firstly, that a huge amount of 'labour' value generation these days is generated by increasingly mobile individuals, who are independent of location, and therefore can avoid attempts by landlords to capture rent from them.

Secondly, that because of the 'non-rivalrous' nature of knowledge, exponentially growing intellectual property constantly eludes the attempts of rentiers to enclose it.

My final point relates to the 'credit commons'.

People-based financing credit enables the circulation of goods and services and the creation of new productive assets.

Asset-based funding credit enables investment in the use value of productive assets once complete.

At the moment the credit system is in private hands, and therefore the surplus value which arises from the development of new productive assets tends to gravitate to the rentier owners of finance capital.

This occurs either directly, through equity investment or indirectly through bank debt, and therefore the profits/rents accruing to bank shareholders and managers respectively.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Jan 21st, 2012 at 01:14:11 PM EST
I would not be very optimistic about growing intellectual knowledge and increasingly mobile individuals. Protection of copyright rentiers are quite catching up - not by physical rounding up, but by SOPA/PIPA threats, a demonstrative close down of Multiupload. In this climate, many web services and creative enterprises are risky to invest in, and this extra-creative infrastructure is already suffering quietly. Like with many exponential grows of the last decade, the creativity growth may be faltering already while we do not know it yet.

The increasingly mobile individuals reflects the drive to escape rentiers indeed - but its increase may be more a sign of desperation than a promising development.

I enjoy your thoughts on the "hardware" of money and credit, as always. But the hardware base has limited importance, I guess. It is the operative code of policy makers and financial masters that makes singular social problems. And if we are entering decades (if not longer) of prolonged decline, with hardly any surplus production, only the feudal on debt or credit entitlements will remain. Some practical value shift is needed.

by das monde on Sat Jan 21st, 2012 at 10:34:34 PM EST
[ Parent ]
Since you operate out of Japan you may not be as sensitive to one of the nastiest forms of rent extraction in the USA -- the medical industry. People in the USA spend 50-100% more for delivered medical services as people in other countries and get far worse overall service, as measured by infant mortality, longevity, percent of the population with access to routine medical services, etc.

Almost a third of the total expense for medical services is incurred in the form of 'insurance' that is massively parasitic. It increases cost and decreases outcomes by rationing services on the ability to pay and delaying services until people die. And a large portion of insurance industry income goes to a very tiny portion of the industry's executives.

And then there is run-amok big pharma, almost entirely motivated to find patentable new 'treatments' a large portion of which offer little if any improvement over existing medicines but produce harmful side effects. This has spawned another profitable specialty for law firms - class action lawsuits on behalf of victims of the side effects of these new 'wonder' drugs, devices and procedures. Significant portions of the profits of both the pharma and the law firms takes the form of TV adverts which pollute broadcast and cable television.  Taken together these form a grotesque 'fitness landscape' whose chief outcome is wealth extraction on behalf of the very rich.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jan 22nd, 2012 at 10:05:32 AM EST
ARGeezer:
grotesque 'fitness landscape'

word... it has to be experienced to be believed.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Jan 22nd, 2012 at 10:40:58 AM EST
[ Parent ]
I do not have a direct experience indeed (save for TV adds perhaps). But my impression is terrifying for a long time, and I can imagine, it gets ever drearier.

Medical service as rent extraction? Sure, whenever a human need is turned into hostage taking. One advantage of public government as an exclusive (or dominant) rentier is that its price is set (by reasonable governments) closer to actual costs rather than the rip value. Which actually can facilitate service exchange better than the free markets as we know them.

by das monde on Sun Jan 22nd, 2012 at 11:22:15 PM EST
[ Parent ]
Last night I watched a doco on the Mafia (Arte, a themed evening, after "Godfather III")

They talked about a medical clinic, built and operated by cosa nostra, where everything cost five times the "real" price (i.e. when it finally got cleaned up, they reduced costs five times with no lowering of the quality).

This is both an exact illustration of rent extraction in itself, and an interesting parable of private medical care in general.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Mon Jan 23rd, 2012 at 04:17:46 AM EST
[ Parent ]
Chefs, Butlers, Marble Baths: Hospitals Vie for the Affluent
The bed linens were by Frette, Italian purveyors of high-thread-count sheets to popes and princes. The bathroom gleamed with polished marble. Huge windows displayed panoramic East River views. And in the hush of her $2,400 suite, a man in a black vest and tie proffered an elaborate menu and told her, "I'll be your butler."

[...] Pampering and décor to rival a grand hotel, if not a Downton Abbey, have long been the hallmark of such "amenities units," often hidden behind closed doors at New York's premier hospitals. But the phenomenon is escalating here and around the country, health care design specialists say, part of an international competition for wealthy patients willing to pay extra, even as the federal government cuts back hospital reimbursement in pursuit of a more universal and affordable American medical system.

[...] "These kinds of patients, they're paying cash -- they're the best kind of patient to have," she added. "Theoretically, it trickles down."

A waterfall, a grand piano and the image of a giant orchid grace the soaring ninth floor atrium of McKeen, leading to refurbished rooms that, like those in the hospital's East 68th Street penthouse, cost patients $1,000 to $1,500 a day, and can be combined. That fee is on top of whatever base rate insurance pays to the hospital, or the roughly $4,500 a day that foreigners are charged, according to the hospital's international services department.

But in the age of Occupy Wall Street, catering to the rich can be trickier than ever [...] She pointed to the recent ruckus at Lenox Hill Hospital, where parents with newborns in the intensive-care unit complained that security guards had restricted their movements and papered over hospital security cameras in their zeal to please Jay-Z (real name Shawn Carter) and Beyoncé Knowles, whose daughter was born on Jan. 7 in a new "executive suite."

The system works great for the people. Real people, you know.
by das monde on Mon Jan 23rd, 2012 at 08:17:07 PM EST
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